ANSYS, Inc. (ANSS) Q4 2022 Earnings Call Transcript

ANSYS, Inc. (NASDAQ:ANSS) Q4 2022 Earnings Conference Call February 23, 2023 8:30 AM ET

Company Participants

Alex Deruta - IR

Ajei Gopal - President, CEO & Director

Nicole Anasenes - CFO & SVP, Finance

Conference Call Participants

Ken Wong - Oppenheimer

Joseph Vruwink - Robert W. Baird & Co.

Jay Vleeschhouwer - Griffin Securities

Tyler Radke - Citigroup

Saket Kalia - Barclays Bank

Steve Tusa - JPMorgan

Operator

Welcome to nan ANSYS Fourth Quarter and Fiscal Year 2022 Earnings Results Conference Call. [Operator Instructions].

Please statement this arena is being recorded. I would now for illustration to move nan convention complete to Alex Deruta, Investor Relations Manager. Please spell ahead.

Alex Deruta

Good morning, everyone. Our net merchandise nan related prepared remarks archive and nan nexus to our 2022 Form 10-K person each been posted connected nan homepage of our Investor Relations website. They incorporate nan cardinal financial accusation and supporting information comparative to our 4th fourth and afloat twelvemonth financial results and business update arsenic good arsenic our Q1 and fiscal twelvemonth 2023 outlook and nan cardinal underlying quantitative and qualitative assumptions.

Today's position contains forward-looking information. Important factors that whitethorn impact our early results are discussed successful our nationalist filings. Forward-looking statements are based upon our position of nan business arsenic of today, and ANSYS undertakes nary responsibility to update immoderate specified information. During this call, we will beryllium referring to non-GAAP financial measures unless different stated. A chat of nan various items that are excluded and nan reconciliations of GAAP to nan comparable non-GAAP financial measures are included successful our net merchandise materials. I would now for illustration to move nan telephone complete to our President and CEO, Ajei Gopal, for his opening remarks. Ajei?

Ajei Gopal

Thank you, Alex. Good morning, everyone, and convey you for joining us. Q4 was different fantabulous quarter for ANSYS and nan largest 4th successful our history. We hit our financial guidance for nan 4th crossed each cardinal metrics, including ACV, revenue, operating separator and net per share. Q4 was nan culmination of a beardown twelvemonth for ANSYS. Our industry-leading merchandise portfolio, loyal customer base, beardown execution and increasing markets enabled america to hit and operationally raise our guidance each 4th of 2022.

This, of course, was contempt nan continued economical uncertainties brought connected by waste and acquisition sanctions and nan warfare successful Ukraine. We grew ACV astatine 14% successful changeless rate for nan afloat year. And successful nan process, we achieved our extremity of $2 cardinal of ACV successful 2022. Thanks to this fantabulous performance, we realized our semipermanent financial extremity group astatine our Investor Day successful 2019. I want to congratulate nan full 1 ANSYS team, including our dedicated transmission partners for nan important accomplishment. In a fewer minutes, Nicole will talk our guidance for Q1 and nan full year. This guidance reflects nan powerfulness of our world-class products, nan ongoing request from our customers and nan spot of our business.

I americium excited that our results from 2022 and arsenic good arsenic our guidance for 2023 support america connected way to achieving nan semipermanent goals we group retired successful our investor update successful August of 2022. Looking backmost astatine 2022, we saw broad-based maturation crossed each awesome industries, geographies and go-to-market routes. Our nonstop and indirect channels grew astatine double digits. Similarly, each of our go-to-market customer segments, endeavor strategical and measurement accounts besides grew by double digits successful changeless currency. The Hi-tech and semiconductor, aerospace and defense and automotive and crushed proscription sectors were again our apical contributors.

From a geographical perspective, we saw beardown performances pinch each region increasing ACV amended than we expected. And I'm excited to denote that 1 of our regions, nan Americas, recorded complete $1 cardinal successful ACV for nan first clip successful our history. I'm besides pleased pinch nan capacity of our merchandise lines from a much established flagship solutions to our newest offerings. Our apical 2 customer agreements for Q4 ACV aliases successful nan world high-tech and semiconductor vertical and totaled much than $125 million. Through these contracts, 1 for 3 years and 1 for 4 years, nan customers are expanding their usage of ANSYS exertion into caller business segments, which is driving much users, much products and much computations.

These customers person realized a number of benefits by utilizing ANSYS solutions. These see identifying silicon issues during nan tape-out sign-off phase, which has saved millions of dollars successful respin arsenic good arsenic reducing multilayer PCB preprocessing clip from a period to conscionable hours. In Q4, we besides signed a statement pinch NuScale Power, an power institution that is processing modular ray h2o reactors to proviso reliable and abundant carbon-free atomic energy. Instead of relying connected costs prevention beingness prototypes, NuScale leverages ANSYS exertion to simulate designs for containment, thermal hydraulics and nan structural integrity of reactors.

ANSYS solutions play a cardinal domiciled successful an extended merchandise improvement process that must navigate a strict atomic support process successful which delays tin costs up to $3 cardinal per day. As you heard pinch this caller standard example, structural study plays a cardinal domiciled successful customer sustainability initiatives. Continuing pinch nan taxable of sustainability done our system solutions I would for illustration to item a fewer examples of really these structures products moving successful conjunction pinch nan remainder of nan ANSYS portfolio reside this important topic.

ANSYS, of course, was founded arsenic a system company. Over nan past 50 years, we person continually invested to heighten our structure's offerings. The applications for structural simulation person evolved arsenic moreover nan simplest products person go much analyzable and today's building is captious for customers to meet their sustainability goals. Two further Q4 income agreements totaling astir $60 cardinal are driving sustainability successful nan power sector. They are some anchored successful structural simulation mixed pinch different physics.

The first is pinch an power institution that is utilizing ANSYS simulation to make its accepted state and steam business turbines much businesslike arsenic good arsenic processing blades and nan cells for its upwind turbines. The 2nd statement is to assistance pinch nan integer translator of different power manufacture leader. This statement is expanding its usage of our solutions to see a assortment of applications, including structural design, thermal stress, and electrical centrifugal creation for its robotic arms. By utilizing ANSYS technology, nan institution has helped to alteration its improvement costs by 20%. While materials is simply a newer ANSYS merchandise offering, it useful hand-in-hand pinch structures, peculiarly erstwhile it comes to gathering customers' sustainability goals.

That's because arsenic customers activity to create much sustainable products, they often see nontraditional materials, which includes caller steels, composites and short fibre reinforced plastics. Structural simulation connected these caller materials tin measure capacity to guarantee information and durability while besides reducing weight and discarded done topology optimization. ANSYS customer quality architects, 1 of complete 1,700 members of our start-up program, is utilizing ANSYS simulation to thief its customers further their sustainability programs.

As companies look for much environmentally friends materials for their products, galore are turning to artificially designed metallic materials to incorporated functions specified arsenic power conduction, deformation and weight reduction. Using ANSYS for structural study and fluid building relationship Nature's architectures implemented a scripting connection that automates simulation tasks and streamlines workflows, which enables nan squad to visualize and research caller structures.

Our caller merchandise of ANSYS 2023 are 1 is besides helping customers pinch their sustainability initiatives. For example, ANSYS Granta Selector's enhanced Ecodata and Eco audit functionality helps engineers research and quickly iterate amongst creation scenarios and worldly options. The instrumentality empowers users to make sustainable materials consecutive disconnected early successful nan merchandise improvement process earlier high-fidelity structural analyses are performed and costs are locked in.

ANSYS solutions are not only helping customers to create much sustainable products, but we are enabling them to do truthful successful a much resource-friendly manner. One specified capacity is successful our 1 is assets prediction which leverages artificial intelligence and instrumentality learning to foretell really overmuch clip and representation will beryllium required. Resource prediction will thief guideline users to execute their business objectives for example, reducing brackish clip aliases decreasing power consumption.

Another invention successful R1 is aimed astatine helping customers summation nan information of electrical vehicles. As you know, EV fires caused by artillery maltreatment aliases impacts tin beryllium catastrophic. This precocious capacity anchored successful our structures portfolio brings together aggregate ANSYS physics to analyse this analyzable problem. Specifically, our caller information workflow successful ANSYS LS Dyna simultaneously simulates nan broad structural electrochemical and thermal responses of batteries that are damaged successful an mishap aliases done immoderate different event.

We are not alert of immoderate different commercialized solution pinch this captious functionality to thief make electrical vehicles safer. In summation to our integrated development, we are furthering our structures merchandise activity done M&A, namely pinch our caller acquisitions of and Rocky. Dynamor was a longtime ANSYS partner and leader successful processing and trading definitive simulation solutions pinch an accent successful nan automotive industry. develops dummy and quality assemblage models successful summation to providing improvement expertise for [indiscernible].

This captious capacity provides customers pinch complete package solutions for clang simulation, caretaker information and accumulation processes. Our acquisition of Rocky solves a blase customer challenge. Nearly 70% of business products knowledgeable bulk granular worldly flows, wherever different sized particles pinch analyzable shapes interact, perchance impacting our merchandise ratio aliases structural integrity. Solving this difficult problem requires heavy knowledge of some structural mechanics and fluid dynamics.

With nan solution from longtime partner, afloat integrated into nan ANSYS portfolio, users tin lick these analyzable creation problems. As a result, our customers will beryllium capable to trim discarded amended merchandise value and foretell nan capacity and durability of equipment. Thanks successful portion to our sustainability initiatives, Newsweek has named ANSYS to its database of America's astir responsible companies for 2023. ANSYS was included successful nan yearly ranking of nan 500 astir responsible companies based connected environmental, societal and firm governance initiatives.

Our inclusion connected this database demonstrates our committedness to making customers amended ratio and trim discarded by minimizing nan request for beingness prototyping. Turning to partners. I'm excited that Autodesk Fusion 360 Signal Integrity hold powered by ANSYS was commercially released successful November by embedding ANSYS' electromagnetic simulation capabilities wrong Autodesk Fusion 360 printed circuit committee designers tin entree adjacent real-time insights earlier successful nan creation process for smart user products.

I'm besides pleased that our electromagnetic and semiconductor solutions including ANSYS Redhawk-SC, ANSYS RaptorH and ANSYS HFSS person received GLOBALFOUNDRY certification for its flagship 22FDX platform. That certification enables travel designers to little costs by reducing excess information margins and improving strategy capacity without compromising reliability aliases risking unexpected and damaging interactions amongst creation elements. In summary, Q4 was an fantabulous 4th that kept a awesome twelvemonth for ANSYS.

We hit guidance crossed each cardinal metrics and delivered nan champion twelvemonth successful institution history. And of course, we exceeded our semipermanent extremity of $2 cardinal successful ACV. I americium assured successful our expertise to execute nan goals we group during our astir caller investor update successful August. Despite immoderate economical uncertainties, our extremity markets stay robust, and our business has proven its resilience complete nan years. Over nan past fewer weeks, I've had nan opportunity to speak pinch members of our nonstop income squad arsenic good arsenic respective of our world transmission partners.

Reporting spot successful nan marketplace from nan largest enterprises done SMB accounts. Given nan value of investigation and development, and innovation. The request for ANSYS simulation continues to beryllium beardown because customers understand our compelling worth proposition. And that is continuing to thrust much users, much products and much computations passim our customer base. Our momentum coming retired of Q4, our beardown customer relationships, our robust extremity markets and our starring merchandise portfolio will propel america done 2023 and beyond.

As a result, we are much assured than ever successful our expertise to execute early milestones. And pinch that, I'll now move nan telephone complete to Nicole. Nicole?

Nicole Anasenes

Thank you, Ajei. Good morning, everyone. Let maine statesman by saying that 2022 was different outstanding twelvemonth for ANSYS, and we're optimistic astir our 2023 and our semipermanent outlook fixed nan momentum successful our business. For some nan 4th fourth and afloat twelvemonth 2022, we hit our financial guidance crossed each cardinal metrics.

This is peculiarly noteworthy fixed that we operationally raised our afloat twelvemonth guidance crossed ACV revenue, EPS and operating rate travel for each 3 quarters passim nan people of nan year. Additionally, successful 2022, we reached caller institution records crossed cardinal financial metrics, including ACV, revenue, EPS and operating rate flow. As Ajei mentioned, our maturation was broad-based successful nan 4th and afloat twelvemonth 2022 pinch maturation seen crossed geographic regions, customer types and industries.

As a consequence of our broad-based performance, we achieved $2.032 cardinal successful ACV successful 2022, which surpasses nan $2 cardinal committedness we made astatine our 2019 Investor Day. For further context, erstwhile translated astatine 2019 overseas speech rates, afloat twelvemonth 2022 ACV would adjacent astir $2.113 billion, further demonstrating nan magnitude and value of our outperformance, which we delivered amidst a world pandemic and a challenging and volatile macro economical situation on. All accounts, 2022 was an outstanding twelvemonth and we are entering 2023 pinch momentum and a beardown backlog.

Now fto maine return a fewer minutes to adhd immoderate further position connected our 4th fourth and afloat twelvemonth financial capacity and past I'll supply our outlook and cardinal assumptions for 2023 and Q1. Beginning pinch ACV. We delivered $818 cardinal successful Q4 and which grew year-over-year, 8% aliases 13% successful changeless currency. For nan afloat year, we recognized $2.32 cardinal successful ACV, increasing 9% aliases 14% successful changeless currency.

For nan 4th and afloat year, capacity was broad-based crossed customer types, geographies and industries. Our wide complaint successful maturation is grounds of nan basal quality of our marketplace starring simulation portfolio and exceptional execution. For further context, our afloat twelvemonth ACV maturation of 14% successful changeless rate came successful 4 points higher comparative to wherever we initially group guidance past February. Throughout nan people of nan year, we absorbed $82 cardinal of nonoperational headwinds and including unprecedented U.S. dollar strengthening and nan exit from business successful Russia and Belarus, which was much than offset by $94 cardinal of incremental operational momentum.

ACV from recurring sources successful 2022 grew 9% aliases 15% successful changeless rate year-over-year and represented 81% of nan total. This momentum successful recurring ACV maturation is driven by nan beardown annuity created by our ongoing displacement towards subscription leases. For nan afloat twelvemonth 2022, ACV capacity continues to beryllium fueled by nan beardown maturation successful subscription leases which grew 18% aliases 24% successful changeless currency. Subscription lease ACV crossed complete $1 cardinal to $1.2 cardinal aliases 57% of full ACV for nan afloat year.

We proceed to expect nan maturation of our subscription leases to beryllium nan underlying driver of nan beardown annuity that has been building complete clip and will proceed to beryllium a instauration for early growth. Q4 full gross was $694.7 cardinal and grew 5% aliases 10% successful changeless currency, which exceeded nan precocious extremity of our guidance and was positively impacted by outperforming connected ACV. Full twelvemonth gross was $2.073 cardinal and grew 7% aliases 13% successful changeless currency. We had beardown apical statement capacity successful 2022 pinch ACV and revenue, some increasing double digit successful changeless rate astatine 14% and 13%, respectively.

In some Q4 and nan afloat year, we executed against our business exemplary of double-digit. We closed nan 4th pinch a full equilibrium of GAAP deferred gross and backlog of complete $1.4 billion, which grew 13% year-over-year. During nan quarter, we continued to present a business exemplary pinch beardown operating leverage. This yielded a coagulated 4th fourth gross separator of 94% and an operating separator of 48% which was amended than our guidance. We had afloat twelvemonth gross separator of 91.8% and operating separator of 42%.

Operating separator was positively impacted by outperforming connected revenue. The consequence was 4th fourth EPS of $3.09, which was besides amended than our guidance. For nan afloat year, EPS was $7.99. Similar to operating margin, EPS benefited from beardown gross results. Our effective taxation complaint successful nan 4th fourth and afloat twelvemonth was 18%. Our operating rate flows successful nan 4th fourth totaled $174 cardinal which benefited from outperforming connected ACV and beardown collections.

Our unlevered operating rate travel was $181.1 million. For nan afloat year, we had operating rate travel of $631 million, which grew 15%, meaningfully outpacing ACV maturation contempt important overseas speech and nonoperational headwinds. For modeling purposes, 2022 operating rate travel translates to unlevered operating rate travel of $648.1 million. For further context, we absorbed $39 cardinal of nonoperational headwinds since initiating 2022 operating rate travel guidance past February.

These headwinds, including nan exit from this successful Russia and Belarus and nan adverse effect of overseas speech were connected apical of nan headwinds from R&E capitalization taxation authorities and different rule changes already factored into our February 2022 guidance. The $39 cardinal of nonoperational headwinds was offset by $70 cardinal of incremental operational capacity passim nan year. The consequence was operating rate travel that was $31 cardinal amended than nan midpoint of our February guidance.

This outperformance was driven by respective factors, including outperforming connected nan ACV and separator description and nan timing of collections. We ended nan 4th pinch $614.6 cardinal of rate and short-term investments connected nan equilibrium sheet. In statement pinch our superior allocation priorities, we repurchased astir 225,000 shares during nan 4th for astir $50 million. For nan afloat year, we repurchased astir 725,000 shares for astir $206 cardinal which was 174% of nan mean superior return to shareholders successful nan shape of stock repurchase complete nan past 3 years.

We person 1.7 cardinal shares disposable for repurchase nether nan existent authorized stock repurchase program. Now fto maine move to nan taxable of guidance. The underlying momentum successful our business and request for our best-in-class portfolio continues to beryllium strong. We delivered an outstanding Q4 and afloat twelvemonth 2022 and we are entering 2023 pinch momentum and a robust pipeline and backlog, which gives america continued assurance successful achieving nan semipermanent outlook that we laid retired astatine our 2022 investor update of 12% changeless rate ACV compounded yearly growth, inclusive of 1 to 2 points of tuck-in M&A and $3 cardinal of cumulative unlevered operating rate travel from 2022 to 2025.

Let maine commencement pinch our afloat twelvemonth 2023 guidance. We expect our afloat twelvemonth ACV outlook to beryllium successful nan scope of $2.265 cardinal to $2.335 billion, which represents maturation of 11.5% to 14.9% aliases 9.9% to 13.4% successful changeless currency. We person a balanced and diversified business, which is driving nan broad-based capacity and double-digit ACV maturation that we expect to spot successful 2023. Notably, nan midpoint of our guidance is connected our exemplary of 12% changeless rate compounded yearly maturation that we group astatine our investor update successful August.

We expect gross to beryllium successful nan scope of $2.242 cardinal to $2.322 billion, which is maturation of 8.2% to 12% and aliases 6.9% to 10.8% successful changeless currency. Let maine touch connected immoderate of nan assumptions embedded successful our afloat twelvemonth guidance. We proceed to expect broad-based maturation and continued momentum from our ample endeavor customers and SMB customers. We besides proceed to presume that our subscription leases turn faster than perpetual licenses and arsenic a result, ACV is expected to turn faster than gross arsenic nan business exemplary displacement towards subscription lease continues. Our afloat twelvemonth guidance is based connected really we spot our book of business and pipeline today.

This brings maine to our operating separator guidance. We expect our afloat twelvemonth operating separator to beryllium successful nan scope of 41% to 42%. As a result, we expect our afloat twelvemonth EPS to beryllium successful nan scope of $8.34 and to $8.86. We expect our afloat twelvemonth effective taxation complaint to beryllium 17.5% and which is 0.5 constituent little than nan 18% complaint we had successful 2022. Now fto maine move to our afloat twelvemonth unlevered operating rate travel guidance.

We are providing guidance for unlevered operating rate travel arsenic it aligns to nan semipermanent $3 cardinal cumulative rate travel outlook we provided astatine our 2022 investor update successful August. Our 2023 unlevered operating rate travel guidance is simply a scope of $710 cardinal to $760 million. We expect to spot different twelvemonth of important maturation successful rate travel levels year-over-year. The implied unlevered operating rate travel maturation of 10% to 17% for 2023 connected apical of nan 16% unlevered operating rate travel maturation we saw successful 2022 exhibits nan continued beardown operating leverage successful our business model.

Further specifications connected nan reconciliation of GAAP operating rate travel and nan comparable non-GAAP unlevered operating rate travel are contained successful our prepared remarks document. Now fto maine move to nan guidance for Q1. For nan first quarter, we expect ACV successful nan scope of $380 cardinal to $400 cardinal and gross successful nan scope of $482.5 cardinal to $507.5 million. We expect Q1 operating separator successful nan scope of 35.3% to 37.3% and EPS successful nan scope of $1.53 to $1.71. Further specifications astir circumstantial rate rates and different assumptions that person been factored into our outlook for 2023 and Q1 are contained successful nan prepared remarks document.

I would for illustration to convey nan ANSYS squad for a awesome 4th rounding retired different exceptionally beardown year. Our capacity is grounds of nan captious quality of our market-leading simulation portfolio arsenic good arsenic nan team's operational subject and attraction connected customer excellence. Our accordant capacity and execution enabled america to present supra and beyond our 2019 Investor Day and 2022 yearly commitments contempt a continued challenging and volatile macro environment.

Our halfway simulation marketplace is beardown and growing, and we are excited astir nan immense opportunity that lies up arsenic we proceed to thief our customers lick their astir analyzable merchandise improvement challenges. We are entering 2023 pinch sizeable momentum, a resilient and diversified business exemplary pinch 3 vectors of maturation and a patient backlog and pipeline. All of which fuels nan optimism embedded successful our afloat twelvemonth and semipermanent outlook.

Operator, we will now unfastened nan telephone lines to return questions.

Question-and-Answer Session

Operator

[Operator Instructions]. The first mobility is from Ken Wong of Oppenheimer.

Ken Wong

Fantastic and awesome 4th from you guys. Ajei, I wanted to conscionable possibly touch connected immoderate of nan spot I noticed 1 conception that really stood retired to maine was nan aerospace and defense from a rev operation perspective, it jumped up. You talked up 7-, 8-figure deals tin you possibly item immoderate of nan underlying drivers there? And arsenic we look retired to '23 and beyond, is location still decent runway for those peculiar maturation tailwinds successful that peculiar vertical?

Ajei Gopal

Sure. Ken. So fto maine concisely talk astir aerospace. Our aerospace customers are facing comparatively analyzable challenges, and it's beautiful broad-based. And truthful erstwhile you deliberation astir immoderate of our business -- we person customers who are focusing connected craft engines. And obviously, location are a number of trends successful that space, whether it comes to lightweighting and power efficiency, successful immoderate cases, electrical engines, different substance sources, truthful there's a number of different levels of invention taking spot astatine various points successful nan AMB aerospace industry. Obviously, successful nan Space 2.0 world, location are -- location continues to beryllium a batch of invention and some successful larger companies arsenic good arsenic smaller companies.

And then, of course, you've seen immoderate of nan activity that we've done pinch important projects for illustration nan web scope and nan acheronian ngo wherever our task wherever our technologies were utilized successful nan improvement of those projects. So there's a batch of different activity crossed nan abstraction successful this full aerospace and defense world for us. And I judge that nan request for our offerings continues to beryllium robust, and we spot a pipeline successful that abstraction arsenic well.

Ken Wong

Great. And past a follow-up for you, Nicole. Just wanted to touch connected nan unlevered operating rate travel guide. I mean, look, it's a awesome number of building disconnected of a really beardown '22. I conjecture arsenic we deliberation astir nan semipermanent targets I deliberation location was benignant of an underlying presumption that location would beryllium description . I conjecture my calculation suggests it's benignant of person to, I think, it looks for illustration 32% disconnected of a 32% number. Is it conscionable you guys spot a small much room for maturation this twelvemonth and we should still presume agelong word that, that number does proceed to expand. Just immoderate puts and takes location would beryllium fantastic.

Nicole Anasenes

Yes. Well, thanks, Ken. And yes, we were really, really pleased pinch nan exceptional adjacent of our rate travel capacity astatine nan extremity of nan year, arsenic you constituent out, it grew rather substantially delevered operating rate travel successful 2022 successful our outlook scope of 10% to 17% unlevered operating rate travel indicates continued momentum successful nan business overall.

As you know, I mean, we gave semipermanent guidance successful August. We're not prepared to update nan semipermanent guidance. But erstwhile you look astatine nan mixed -- nan 2-year maturation complaint of 2022 and 2023 from nan ECB perspective, and nan comparative unlevered operating rate travel maturation complaint complete that period, you could spot nan important operating leverage and separator description associated pinch that it's a small early for america to update semipermanent guidance we conscionable gave it 6 months ago. But what I tin opportunity is -- and there's a batch of exogenous factors that impacted unlevered operating rate travel number arsenic you know, overseas speech had a beautiful meaningful effect to that past year.

As an example, we're still not rather retired of nan woods arsenic it relates to that truthful not really prepared to springiness thing longer word than 2023 today, but we consciousness really bully astir nan underlying spot of nan operational momentum of nan business. We person a very disciplined finance exemplary astir putting finance in, that drives incremental growth. And those are things that we -- that we expect to beryllium capable to proceed to build connected complete nan adjacent mates of years.

Operator

The adjacent mobility is from Joe Vruwink of Baird.

Joseph Vruwink

Great. ACV successful an integrated ground seems to beryllium growing, I think, respective 100 ground points supra nan model that was provided past year. I conjecture my mobility is, wrong that 2022 to '25 clip line, were nan years 2022 and 2023 ever intended to beryllium this way, conscionable given, I don't know, pricing aliases renewals aliases nan displacement to leases? And if that's not nan case, possibly you tin conscionable locomotion done immoderate of nan upside drivers nan past twelvemonth and past successful position of your outlook for this year?

Nicole Anasenes

Yes, sure. So possibly conscionable benignant of level group connected what nan constitution of 2022 was successful 2023, we tin talk astir nan agelong term. So arsenic we antecedently mentioned, nan inorganic publication from ZMAX past year, we had said it was astir $20 million. And that, arsenic you constituent out, contributed astir a constituent of maturation to nan wide capacity past year. As we look into 2023, we completed 2 acquisitions astatine nan extremity of nan 4th aft our net announcement. were nan astir notable were 2 that completed astatine that time. Just immoderate discourse of those is simply a merchandise we were nan superior reseller for already.

And it's besides a beautiful mini merchandise statement truthful it doesn't person a very worldly tally complaint to nan business. And though we already had a narration pinch we expect nan inorganic publication from that transaction to beryllium astir EUR 30 cardinal to EUR 35 cardinal of ACV successful revenue. So pinch conscionable nether half of that successful Q1. So there's a beautiful different SKUs to that business comparative to ours. So that would put america astir nan 10% changeless rate maturation successful ACV erstwhile you exclude Dyna much our afloat twelvemonth outlook which is connected our business exemplary of double-digit growth, including ACV.

As it relates to nan semipermanent position of ACV and really we spot it, I mean, we location isn't a position successful peculiar astir what happened successful 2022 and really that would alteration nan outlook successful nan early are out, we still stay assured successful nan 12% compounded yearly maturation complaint done nan people of that time. And certainly, arsenic trends successful nan business alteration and nan underlying -- thing that foundationally would displacement that maturation objective, we would surely update our semipermanent guidance astatine that time.

But correct now, we're really pleased pinch what we delivered successful 2022 and we're building -- we person a really beardown outlook for 2023 connected apical of a really beardown capacity successful 2022, and we're really pleased to proceed to beryllium connected that exemplary that we group retired in.

Joseph Vruwink

Okay. Great. was a spot bigger now. I was thinking. So that's each helpful. And past location was an absorbing remark connected conscionable capacity crossed your different customer segments. I guess, I'll ask, are location any, I guess, noticeable changes successful spending patterns erstwhile you deliberation wrong your apical 100 and outside? And I guess, astatine nan bosom of this question, is nan beardown gait of nan outlook for 1Q. Typically, I deliberation astir that being extracurricular nan large year-end endeavor activity. And truthful is this indicating possibly spot that is much wide crossed nan customer guidelines astatine nan commencement of nan year?

Nicole Anasenes

Yes. I mean arsenic we said successful our prepared remarks, and I deliberation we've said that passim past year, nan underlying drivers of maturation successful 2022 was very broad-based crossed customer geographies industries and nan outlook considers very akin broad-based. There's nary individual customer concentration. There is 1 constituent to Q1 guidance, and I had deliberation I concisely mentioned this successful nan first portion of my reply to you connected M&A -- connected nan M&A impact. does person a somewhat different SKUs to their business. There's conscionable nether half of nan business that really happens -- and truthful a small spot much than half -- a small spot little than -- aliases spot little than half of nan business successful Q1. So location is simply a small spot of a move astir Dynamar that is earlier connected successful nan twelvemonth comparative to nan early periods successful nan twelvemonth that we person a somewhat different shape than possibly immoderate of nan much benignant of smaller impacts connected a quarterly ground that you spot of immoderate of nan different M&A that we've done successful nan past.

Operator

The adjacent mobility is from Jay Vleeschhouwer of Griffin Securities.

Jay Vleeschhouwer

Let maine inquire your mobility that we've been posing to your CEO peers astatine nan different companies successful nan group. And that is successful nan discourse of what you've defined arsenic a twelve elements of your semipermanent exertion strategy erstwhile you deliberation astir 2023 spending priorities and beyond, what are -- successful position of your R&D, nan astir incremental aliases newest priorities complete and supra your guidelines investments successful solvers and not nan solvers.

What would you opportunity are immoderate of your astir important aliases newer executables arsenic acold arsenic R&D are concerned, and past 2nd question, astatine nan Analyst Meeting 6 months ago, you said of a assortment of maturation vectors, among which you described nan accepted usage cases and caller usage cases erstwhile you deliberation astir '23 guidance, is location immoderate measurement you could subordinate nan measurement you thought astir those maturation vectors to '23 guidance successful position of nan accepted usage cases and caller aliases which you besides referred to arsenic connected and integrated workflows. Thank you.

Ajei Gopal

So Jay, truthful firstly, erstwhile you deliberation astir our method priorities will beryllium areas that we're making investments successful our business, I would opportunity that astir apt 5 wide areas wherever we're making technological investments. The first I would broadly categorize arsenic numerics and that includes physics models and methods for some nan physics and multiphysics. That's conscionable nan halfway physics portion of what we do. The 2nd area is successful AI instrumentality learning wherever we're making important investments crossed nan portfolio.

Our customers coming are seeing nan benefits of ANSYS products that person been enhanced done AI. We've, of course, revenge patents to screen immoderate of our activity successful nan space, and we proceed to make important investments successful AI and getting our customers to beryllium capable to return advantage of this awesome exertion successful nan discourse of our offerings. The 3rd area is high-performance computing. That evidently includes -- that evidently includes some HBC arsenic good arsenic CPUs, GPUs and truthful for example, if you look astatine R1, we conscionable announced immoderate really breathtaking activity connected [indiscernible] for example, our optical solver wherever we tin show that a azygous GPU is thing for illustration 8x faster than nan 32 halfway CPU machine.

And then, of course, we're very excited astir a fluent multi-GPU solver which allows fluid simulations to tally natively connected aggregate GPUs, and that is simply a crippled changer successful position of performance, and we tin show tremendous orders of magnitude standard up and successful position of some capacity arsenic good as, of course, costs savings erstwhile it comes to things for illustration power usage and others. So we are very excited astir nan activity that we've done successful nan GPU space, and we proceed to make investments complete there.

Cloud and acquisition is nan 4th area. That includes nan activity that we're doing successful cloud. You whitethorn person seen immoderate caller announcements wherever we're -- we've announced immoderate of our unreality exertion successful nan discourse of our unreality marketplace offerings, and we proceed to put successful unreality autochthonal capabilities arsenic good arsenic personification experience. And nan past area is successful integer engineering, and that includes things for illustration integer twins, mission, strategy simulation and there, we proceed to make advances.

And you saw, obviously, immoderate of nan capabilities of our merchandise lines connected nan space. Unintended erstwhile you -- erstwhile we talked astir James Webb arsenic good arsenic nan acheronian mission, but certainly, we person ongoing investments successful that abstraction arsenic well, and that includes things for illustration NBFC. So broadly, location are 5 areas: numerics, AI, ML, high-performance computing, unreality and acquisition and integer engineering and these are nan areas that are driving our next-generation activities.

Nicole Anasenes

Yes. And Jay, to reply your mobility connected benignant of relationship to customer demand, I deliberation nan measurement that you could deliberation astir it, if you look astatine these if you benignant of mention to nan trends that Ajei conscionable referred to arsenic good arsenic nan underlying benignant of capacity successful our manufacture mix. I mean overmuch of what's driving that request are nan analyzable multi-business usage cases and nan trends that are driving finance successful those areas, right? So we talked astir double-digit maturation -- double-digit maturation successful automotive successful Q4 arsenic an example, and nan things that are driving those trends are really astir nan adjacent procreation of vehicles and exertion that are connected to things for illustration electrification, sustainability, those types of things.

As you know, those are not a azygous constituent level. Single [indiscernible] problem, which are falling to that accepted usage case, they are analyzable multiphysics forms that impact some constituent level each nan measurement to nan strategy and systems of strategy level peculiarly successful cases for illustration abstraction 2.0 alerting. And truthful what we are seeing is much and much of that strategical trading mobility becoming nan main attraction of -- aliases nan main mobility of really we prosecute our customers and beryllium solving those higher bid analyzable problems, which makes america a very important partner sloppy of what benignant of economical times, group whitethorn beryllium having -- we thief waste those very difficult problems known tin thief sell.

Operator

Next mobility is from Steve Tusa of JPMorgan.

Steve Tusa

Just a mobility connected nan benignant of nan cadence of nan guide. I deliberation you mentioned nan acquisition power connected nan 1Q. It seems for illustration nan 1Q is beautiful beardown from a separator and gross maturation perspective. And past Matt, if you conscionable benignant of backmost retired nan adjacent 3 quarters, it's slower and margins, I think, are down year-over-year. Maybe I'm doing nan calc wrong. Can you conscionable talk astir a spot of what's going connected there?

Nicole Anasenes

Sure. So first, 1 of nan aspects to nan business since nan accounting alteration for nan 606 accounting alteration respective years back. is that nan dynamics astir gross nickname creates a batch of volatility successful nan P&L and peculiarly connected a quarterly basis. And that's because nan quality successful nan underlying operation of licenses connected a year-over-year ground tin importantly power nan dynamics astir gross recognition. And truthful nan margins nan benignant of shape passim nan twelvemonth is simply a small little meaningful successful benignant of extrapolating benignant of wherever directional momentum is going peculiarly successful nan P&L. We do besides person akin variability successful quarters arsenic customers person moved to multiyear leases -- it is not arsenic overmuch of a trading mobility wherever it's only astir an arena astatine a constituent successful clip that benignant of comes up erstwhile a year, there's an ongoing trading process that happens benignant of passim nan twelvemonth wherever ACV tin beryllium remixed comparative for a azygous customer comparative to what nan anterior twelvemonth looks like.

So there's sizeable volatility that happened passim nan quarters. And that's why we're really focused connected being really clear astir our afloat twelvemonth guidance wherever our afloat twelvemonth outlook is for ACV and operating rate travel and peculiarly successful particular, successful nan P&L overall. And nan measurement that we consciousness we're indicating benignant of nan alteration successful nan trajectory of nan business is pinch our updates to nan afloat twelvemonth guidance. And truthful that's really that's really we would deliberation astir it wide is really astir that. And I deliberation you could spot that successful benignant of really we went done our guidance past year.

And if we could look astatine nan opening of nan year, location was a 4-point quality successful ACV arsenic an example, arsenic we progressed passim nan year. And that's because our accuracy is that we look -- we springiness guidance based connected what we spot up of america coming and what nan pipeline successful nan book of business looks for illustration today. And arsenic things change, up aliases down, we will beryllium clear astir what changes. We don't effort to create wide ranges, which foretell macro trends aliases things that we can't control. We effort to look astatine it successful position of wherever our book of business is today. So does that reply your question?

Steve Tusa

Yes, that's helpful. I conjecture you were beautiful clear successful mentioning that you're seeing spot crossed ample enterprises arsenic good arsenic mini and medium-sized businesses, which is intelligibly different than what immoderate different evidently not simulation companies, but much of nan PLM and CAD guys are saying. So I conscionable wanted to make judge location was thing successful that guidance that was contrary to that remark wherever it seems for illustration nan spot is broad-based and really not slowing. So nan guidance is really not meant to bespeak that benignant of macro outlook.

Nicole Anasenes

Yes, absolutely. I mean it is nan variability wrong nan timing of things successful nan quarters tin create immoderate ups and downs passim nan year. But nan wide outlook, which we deliberation is rather beardown retired of nan gross is really a reflection of broad-based demand, arsenic you constituent out.

Steve Tusa

Great. Just 1 much connected 1Q. Any colour connected rate travel for 1Q.

Nicole Anasenes

Cash flow, truthful we do not springiness quarterly rate travel guidance because nan dynamics astir rate travel wrong a 4th because alteration because of timing of payments that autumn complete day lines -- aliases timing of collections that could waste complete datelines rather easy and make really meaningful differences. But for modeling purposes, I deliberation you tin presume that a meaningful information of nan rate travel occurs successful Q1, peculiarly disconnected of a beardown Q4.

And Q1 and Q4 thin to beryllium nan largest rate travel quarters. The mediate 2 quarters thin to beryllium a small spot much muted pinch Q2 being astir apt nan little h2o mark.

Operator

Okay. The adjacent mobility is from Saket Kalia of Barclays.

Saket Kalia

And good done connected a beardown decorativeness to -- convey you Nicole, possibly for you, very adjuvant connected nan ACV publication from inorganic. I was wondering if you could conscionable talk astir that from conscionable a separator and free rate travel perspective. And conscionable to preface it a small bit, I mean, ANSYS is, of course, truthful profitable. It's uncommon that a tuck-in acquisition is accretive to margins. But tin you conscionable possibly conscionable springiness america immoderate wide brushes connected operating margins, that is.

Can you conscionable springiness america immoderate wide brushes connected really and and possibly immoderate of nan different benignant of acquisitions for mid-'22 are impacting that separator present successful '23? And whether those acquisitions are possibly additive aliases dilutive to operating rate flow?

Nicole Anasenes

Yes. Thanks, Saket. So arsenic you constituent out, successful almost each acquisition we do is dilutive to existent margin. So location is nary accretion for separator that occurs pinch immoderate aliases immoderate individual acquisition we have. Now arsenic it relates to rate flow, Cash travel is besides comparatively much muted successful nan first year. I mean, sometimes you tin person immoderate flimsy affirmative impacts rate flow. But arsenic you know, there's meaningful twelvemonth 1 expenses associated pinch integration and those types of things, which are normal operating rate outflows. And truthful arsenic it relates to nan astir important benignant of individual contributor to nan wide portfolio would beryllium nan example. That did person immoderate publication to nan underlying rate travel guide, but it's really humble comparative to what it mightiness beryllium connected an ongoing basis.

Saket Kalia

Got it. Got it. That's very helpful. Ajei, possibly for my follow-up for you. You touched connected this successful nan mobility conscionable astir R&D priorities pinch immoderate of nan nationalist unreality announcements, which I thought were very notable this 4th pinch some AWS and Azure. Maybe conscionable a higher-level question. How do you benignant of deliberation astir nan operation of simulation being done connected nationalist unreality hyperscalers versus much accepted on-premise aliases backstage unreality simulation being done wrong your customer guidelines -- and really do you benignant of spot that operation shifting? How -- does that make sense?

Ajei Gopal

Yes, it does. Thank you for nan question. Look, nan measurement you should deliberation astir it is, from an ANSYS perspective, we're really agnostic arsenic to wherever personification mightiness beryllium capable to tally our solutions. I mean we want -- I mean, 1 of nan superior uses of unreality coming is for high-performance computing applications. And truthful we cognize that we person customers who are taking advantage of nan licenses that we make disposable to them and they're utilizing them successful nan nationalist cloud. And really, from our perspective, we want group to person nan elasticity to beryllium capable to usage to beryllium immoderate situation wherever they person compute available. Obviously, arsenic clip goes on, location is simply a clear inclination moreover successful nan largest organizations, which person invested successful information centers location is simply a clear inclination towards taking advantage of nationalist cloud.

And obviously, arsenic nan nationalist unreality vendors are continuing to put successful technological computing capabilities, wherever nan nodes that are disposable person nan requisite needs for technological computing, that's besides driving incremental usage. So it is intelligibly an ongoing it is intelligibly an ongoing guidance and thing that we expect to spot happen. From our strategy, I mean, look, we are very excited astir nan nationalist unreality being utilized from our strategy perspective, we have, arsenic you know, 2 chopped kinds of unreality offerings, what we telephone unreality marketplace and what we telephone unreality autochthonal and this operation of marketplace and autochthonal takes afloat advantage of everything that we antecedently talked astir arsenic good arsenic immoderate of nan recently developed and announced unreality capabilities.

The marketplace offerings are really astir delivering elasticity to our existing customer base. So it's really giving customers, arsenic I said earlier, giving them nan action to support nan aforesaid patterns that they employment today, taking advantage of acquainted ANSYS products while leveraging nan use of unreality computing and their ain pre-existing relationships pinch unreality work providers. And truthful you mentioned nan ANSYS Gateway pinch AWS, which we released successful Q4 of past year. You talked astir nan announcement we made successful February of this twelvemonth wherever we extended our Microsoft business successful nan Agile marketplace offering. So there's a number of activities successful that space.

On nan unreality autochthonal space, we're targeting caller users and caller usage cases, and that's really a cloud-based level for nan improvement and deployment of caller workflows and applications. And arsenic if you retrieve backmost astatine our Investor Day, we talked astir a caller area of verticalized simulation applications wherever nan powerfulness of simulation gets extended acold beyond its existent personification guidelines to, frankly, anyone who needs predictive analytics.

And truthful we person initiatives and R&D efforts underway successful that space. And it's still very early days, but you should enactment tuned for much advancement arsenic we proceed to move this breathtaking exertion for nan rollout.

Operator

The adjacent mobility is from Tyler Radke of Citi.

Tyler Radke

Yes. Some really awesome results successful Germany and Japan this quarter, and I deliberation you talked astir immoderate large wins pinch nan automakers. Could you conscionable talk astir immoderate of nan drivers of that outperformance successful nan quarter? And successful these ample deals pinch nan automakers, for illustration what precisely is driving nan ample description s and possibly spell into immoderate item successful position of nan higher simulation halfway count that you're seeing successful physics centrifugal design. And if you could conscionable elaborate connected immoderate of nan trends driving that?

Ajei Gopal

Sure. I mean, look, nan automotive business is 1 of our apical 3 industries, arsenic you know, apical 3 verticals arsenic we specify it, maturation precocious tech and semiconductor, aerospace and defense and automotive and crushed transportation. And it continues to beryllium a beardown area. And we've sewage heavy relationships pinch our automotive customers arsenic they proceed to look these analyzable challenges pinch their products. And there's a number of things -- there's a number of areas wherever they're continuing to innovate. Firstly, obviously, if you deliberation astir rider cars for a moment, location is intelligibly a guidance towards substance ratio and truthful connected successful much accepted cars successful nan accepted soul combustion motor and that deals pinch lightweighting, et cetera, clang testing, those are crossed each of nan merchandise lines.

But arsenic you commencement to deliberation astir nan next-generation electrification replacement energies, those are each important themes wherever customers are investing and making investments for nan agelong term. Battery technology. And I dream maine mention an illustration of immoderate of nan activity that we're doing location pinch effect study pinch nan -- successful my book earlier. So there's a batch of activity successful aggregate areas taking spot that are supporting nan automotive customers I would conscionable constituent out, by nan way, that arsenic we deliberation astir nan activity that takes place, for example, pinch electrification successful nan automotive industry, nan activity that leads to that includes nan full proviso concatenation and past whitethorn beryllium suppliers who are successful our high-tech vertical aliases building very high-tech components that are past being utilized successful nan automotive space.

And truthful if you commencement to look astatine nan full proviso chain, nan effect of automotive is very ample crossed nan manufacture arsenic they're looking astatine each of these different areas. Now nan breadth of our exertion and nan breadth of nan portfolio I mean it's truthful ample that we are capable to thief our customers arsenic they are looking astatine each of these different issues. Sustainability is different example. And that's why I deliberation you're seeing spot successful these industries, nan blase industries, which require these -- which are going done these transformations, we are capable to thief our customers navigate done these next-generation [indiscernible] that they're facing aliases trends of nan dealing pinch nan market.

Tyler Radke

And a follow-up for Nicole. Obviously, nan profitability capacity successful nan 4th and outlook was beautiful strong. I'm wondering if there's immoderate costs savings aliases OpEx circumstantial initiatives that you're undertaking aliases if this is conscionable a consequence of nan apical statement outperformance. But if you could conscionable -- obviously, a batch of companies retired location taking a look astatine nan processes and group certainly, you're not facing nan level of maturation challenges.

There's a batch of different package companies. But conscionable funny if there's immoderate incremental initiatives connected nan costs broadside that you're pursuing here.

Nicole Anasenes

Thanks, Tyler. So what I would opportunity is, yes, that nan operating -- we person very beardown operating leverage successful nan business because we person comparatively debased adaptable costs and truthful that's why you tin decidedly spot arsenic we proceed to accelerate growth, nan operating leverage successful nan business. Now it comes down to what do you do pinch that incremental growth? And really do you reinvest it and I would opportunity that we person a tremendous magnitude of operational subject astir decision-making astir investments that is not caller to ANSYS. It is benignant of embedded successful really we make decisions and really we prioritize wherever we put investments pinch an oculus towards really do we get return pinch a equilibrium connected what is helping america for nan short word and really are we making judge that we're prudently investing for nan agelong term.

And truthful that strategy has served america well. It has allowed america to proceed to put successful nan business arsenic things -- arsenic things are bully and make judge we tin accelerate our roadworthy map. It besides helps america understand really we request to show things complete time. And truthful there's thing rather caller and an always-on basis, we're ever reevaluating our processes and looking astatine person a beautiful robust enterprise-wide translator process astir really do we region nan unnecessary activity successful nan measurement that we support nan business.

And again, that's not caller to power nan outlook, but it is nan logic why we tin enactment nan people connected nan strategy that we person because we've ever been operationally disciplined. So moreover erstwhile there's times pinch uncertainty, we're assured that we person nan maneuverability to execute.

Operator

This concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to guidance for closing remarks.

Ajei Gopal

Once again, I americium excited by nan fantabulous advancement ANSYS made successful 2022. I would for illustration to convey nan 1 ANSYS squad astir nan world for our ongoing success. The team's activity our broad-based business momentum and our beardown customer relationships springiness america moreover greater assurance successful our expertise to execute against semipermanent goals. Thank you again for joining today's call, and person a awesome day.

Operator

The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.